Thursday, February 27, 2014

In response to arguments about Comcast's monopoly power in the content market, Robert writes:

Now consider Comcast’s profit maximization problem. Comcast is already a monopolist so it increases its price until any further price increases actually reduce profits. . . . Now note that in the context of a content merger, the willingness to pay of the consumers does not change. Consumer’s demand is the same as it has always been and both Comcast and the content providers are taking advantage of this willingness to pay to the maximum extent they can. However, what’s key to note is that the upstream content providers’ profit maximization is actually interfering with Comcast’s ability to serve more consumers by increasing the price at which Comcast can provide the content. If Comcast acquires the upstream content producers, it effectively lowers its acquisition cost; and a monopolist responds to lower costs with lower prices!